Ohio Farm Financial Conditions and Outlook: Farm Income and Assets, Land Values and Rent, and Farm Financial Stress Ani Katchova Associate Professor Farm Income Enhancement Chair Department of Agricultural, Environmental, and Development Economics The Ohio State University Contributions by post docs Lawson Connor, Robert Dinterman, and Ana Claudia Sant Anna OSU-AEDE Agricultural Policy and Outlook Conference November 9, 2017
Farm financial conditions and outlook themes Farm income and assets: Ag downturn since 2013, but farm income, farm assets and equity forecasted to increase in 2017. Farmland markets: Flat growth in land values and rents for US for 2017 after declining land values and rents last year. Land values continued to decline in Ohio but cash rents increased in 2017. Financial stress: Reduced working capital, poor cash flow, overall deteriorating but stable financial performance. Ag lenders: Heightened loan demand and slower repayment rates, but bankruptcy rates are historic low despite recent uptick, liquidity challenges have not led to widespread solvency problems. Outlook: Farm economy seems to show some signs of improvement. What is the outlook for 2018 and beyond?
Net cash income ($100.4B) and net farm income ($63.4B) forecast to increase for the first time since 2013. 160.0 Net cash income and net farm income, U.S. 140.0 131.6 Billion $, U.S. 120.0 100.0 80.0 60.0 40.0 20.0 106.2 81.4 89.2 100.4 61.5 63.4 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F Net cash income U.S. Net farm income U.S. Source: USDA, ERS, Farm Income and Wealth Statistics.
Ohio net cash income ($1.3B) and Ohio net farm income ($0.4B) experienced a third straight year of decline in 2016 Billion $, U.S. 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Net cash income and net farm income, Ohio 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F Net cash income Ohio Net farm income Ohio 1.3 0.4 Source: USDA, ERS, Farm Income and Wealth Statistics.
Ohio farm income is about 2.4-2.5% of the U.S. farm income but shows more relative variability Billion $, U.S. 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 Net cash income and net farm income, U.S. and Ohio 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F Net cash income U.S. Net farm income U.S. Net cash income Ohio Net farm income Ohio 1.3 0.4 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Billion Dollars, Ohio Source: USDA, ERS, Farm Income and Wealth Statistics.
Farm income forecasts may under-predict or over-predict farm income compared to realized estimates. 140 Net farm income forecast vs realized estimates Billion $, U.S. 120 100 80 60 40 20 0 1975 1980 1985 1990 1995 2000 2005 2010 2015 Net farm income estimate February forecast August forecast November forecast February(t+1) forecast Source: Kuethe, Hubbs and Sanders (Farmdoc daily, 2017)
Large declines in net cash income were associated with the 1980s farm crisis and the recent ag downturn 160.0 Nominal net cash income and net cash income in 2016 dollars, U.S. 140.0 120.0 Billion $, U.S. 100.0 80.0 60.0 40.0 20.0 0.0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Net cash income U.S. in 2016 dollars Net cash Income U.S. Source: USDA, ERS, Farm Income and Wealth Statistics.
Net cash income per farm in Ohio has similar trends as the US $80,000 Net cash income per farm in 2016 dollars $70,000 $60,000 $50,000 $40,000 43979 $30,000 $20,000 $10,000 17089 $0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Net cash income per farm US Net cash income per farm Ohio Source: USDA, ERS, Farm Income and Wealth Statistics.
Cash receipts forecasted to increase; driven by increases in animal product receipts; crop receipts have modest increases Total Crop and Animal Products Cash Receipts 250 200 231.6 211.4 212.8 190.1 169.8 176.5 Billions, U.S. 150 100 50 0 Crops Animal products 2011 2012 2013 2014 2015 2016 2017F Source: USDA, ERS, Farm Income and Wealth Statistics.
Cash receipts are forecasted to increase by $14.1 billion (4.0%) in 2017, largely driven by increases in livestock and dairy receipts. U.S. cash receipts for selected crops 100.0 80.0 67.6 Billions, U.S. 60.0 40.0 20.0 45.8 40.4 38.4 23.8 8.6 0.0 Cattle and calves Corn Soybeans Dairy products Fruits & nuts Wheat 2011 2012 2013 2014 2015 2016 2017F Source: USDA, ERS, Farm Income and Wealth Statistics.
Ohio cash receipts declined by 11.8% in 2016, due to decline in livestock receipts. 3.5 Ohio cash receipts for selected crops 3.0 2.5 2.4 2.0 1.7 1.5 1.0 0.5 0.0 0.9 0.6 0.6 Corn Soybeans Dairy products, Milk Hogs Cattle and calves Wheat 2011 2012 2013 2014 2015 2016 0.2 Source: USDA, ERS, Farm Income and Wealth Statistics.
Farm expenses expected to increase due to higher labor, interest and fuel expenses; declines in feed and fertilizer expenses. 70 60 54.0 U.S. farm expenses Total production +1.3% Interest +12.8% Fertilizer 9.9% Billion, U.S. $ 50 40 30 20 10 5.9 21.2 13.5 19.6 35.4 19.8 15.1 13.5 21.6 0 Electricity Feed purchased Fertilizer and lime Fuel and oil Interest Labor Net rent to landlords Pesticides Property taxes Seed 2015 2016 2017F Source: USDA/ERS Farm Income and Wealth Statistics.
Farm assets, equity and debt forecasted to increase in 2017 Billion dollars, U.S. 3,500 3,000 2,500 2,000 1,500 1,000 Farm assets, equity and debt expected to increase in 2017 3,075 2,949 2,910 2,957 2,776 2,638 390 345 357 373 315 2,319 298 2,171 294 279 2,341 2,461 2,604 2,553 2,583 2,685 1,892 2,024 500 0 2010 2011 2012 2013 2014 2015 2016 2017F Farm equity Farm debt Source: USDA, ERS, Farm Income and Wealth Statistics.
Farm assets, equity and debt expected to increase in 2017 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2.0% 4.0% 6.8% 7.0% 5.6% 13.8% 15.6% 1.0% Farm sector assets, equity, and debt, percent changes from previous year 6.0% 5.2% 5.1% 6.2% 5.8% 9.5% 3.3% 1.3% 2.0% 1.6% 1.2% 4.7% 4.0% 3.9% 4.4% 2011 2012 2013 2014 2015 2016 2017F Farm assets Farm equity Farm debt Source: USDA, ERS, Farm Income and Wealth Statistics.
Farm real estate assets, representing 83% of farm assets, expected to increase in 2017 Farm sector assets by type 2,557 Billion dollars 255 89 50 15 83 Real estate Machinery and vehicles Animals and products Crops stored Purchased inputs Financial assets 2010 2011 2012 2013 2014 2015 2016 2017F Source: USDA, ERS, Farm Income and Wealth Statistics.
Farm real estate assets to total farm assets has increased 0.86 0.84 0.82 0.80 0.78 0.76 0.74 0.72 0.70 0.68 0.66 0.64 Share of real estate in farm assets 0.83 0.79 0.76 0.74 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: USDA, ERS, Farm Income and Wealth Statistics.
Ag downturn reflected in falling farm assets and farmland values 1,200,000 Assets, equity and real estate values per farm in 2016 dollars U.S. Dollars 1,000,000 800,000 600,000 400,000 $1,003,000 $876,000 $842,000 200,000 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Assets per farm Equity per farm Real estate value per farm Source: USDA, ERS, Farm Income and Wealth Statistics.
Servicing debt is harder when income declines: 1980s farm crisis and recent ag downturn 160000 Debt and net cash income per farm 140000 120000 $127,000 100000 U.S. Dollars 80000 60000 40000 20000 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Debt per farm in 2016 dollars Net cash income per farm in 2016 dollars $30,000 Source: USDA, ERS, Farm Income and Wealth Statistics.
U.S. cropland values remained the same in 2017, farm real estate values increased by 2.3%. 4500 4000 3500 3000 Farmland values per acre, U.S. Cropland $4,090 0.0% $3,080 2.3% $ per acre 2500 2000 1500 1000 500 Farm real estate Pasture $1,350 1.5% 0 1977 1982 1987 1992 1997 2002 2007 2012 2017 Year Source: USDA, NASS. Land Values Summary.
Ohio land values continued to decline in 2017 for a second year. Farmland values per acre, OH 7000 6000 Cropland $5,780-0.3% $ per acre 5000 4000 3000 2000 Farm real estate Pasture $5,650-0.9% $3,050-1.6% 1000 0 1977 1982 1987 1992 1997 2002 2007 2012 2017 Year Source: USDA, NASS. Land Values Summary.
2017 cropland values show major differences by state Cropland Value per acre in U.S. Year 2017 $2,890 $1,020 $2,000 $4,800 $2,860 $3,400 $3,420 $1,350 $1,920 $3,330 $4,550 $1,970 $8,100 $3,820 $5,200 $7,350 $6,700 $4,450 $3,850 $5,780 $6,000 $3,160 $4,480 $2,580 $13,000 $8,100 $6,530 $11,290 $8,400 $1,480 $1,740 $2,790 $3,640 $3,000 $3,420 $2,500 $3,970 $2,010 $2,720 $2,740 $6,750 U.S. $4,090 Source: USDA, NASS. Land Values Summary.
Some states in the Corn Belt and in the Midwest had a decline in land values Percentage change in U.S. Cropland Value per acre Year 2017 U.S. 0.0% Source: USDA, NASS. Land Values Summary.
Cash rent for cropland remained stable in 2017 $ per acre 160 140 120 100 80 60 40 20 Cash rent per acre, U.S. Cropland Pasture $136 0.0% $12.5-3.8% 0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Cropland,U.S. Pasture, U.S. Source: USDA, NASS, Cash Rent Survey.
Ohio cash rents increased by 1.3% in 2017 160 140 120 Cash rent per acre, OH Cropland $152 1.3% $ per acre 100 80 60 40 20 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Cropland, OH Source: USDA, NASS, Cash Rent Survey.
Cash rents higher in Corn Belt states Cash rent per acre for non irrigated land in the U.S. Year 2017 $73 $90 $35 $58 $27 $26 $64 $117 $15 $149 $30 $56 $31 $18 $28 $166 $231 $121 $43 $71 $133 $115 $218 $193 $152 $79 $144 $42 $58 $95 $88 $83 $55 $65 $42 $50 $60 $48 $63 $88 $94 $50 U.S. $136 $57 $57 $67 Source: USDA, NASS, Cash Rent Survey.
Cash rents continue to decline for many regions in 2017 Percent change in U.S. cash rent per acre Year 2017 1.4% 12.5% 16.7% -4.9% -1.9% -4.5% -2.4% -2.5% 1.5% 3.4% -4.2% -1.7% -0.7% -0.9% 1.6% 1.3% 1.3% 3.9% 3.4% 0% -0.8% 5% 1.4% 5.5% 3.3% 5.9% -8.5% 3.7% -1.4% 1.1% 6% 2.4% -1.2% 0% 3.2% 3.4% 5% -2.2% -6% 0% 22% -5% 6.5% 26.4% 0% U.S. 0.0% Source: USDA, NASS, Cash Rent Survey.
Cash rents in Ohio vary based on soil productivity Cash rent per acre for non irrigated land in Ohio Year 2017 OH $152 Source: USDA, NASS, Cash Rent Survey.
Cash rent increased in central Ohio, though it decreased in half of the counties. Percent change in Ohio cash rent per acre Year 2017 OH 1.3% Source: USDA, NASS, Cash Rent Survey.
Cash rent decreased in northern and eastern Agricultural Districts 2017 cash rents of Ohio Agricultural Districts and percent change $162 ( 0.6%) $144 ( 0.7%) $80.50 ( 0.6%) $190 (0.0%) $165 (5.8%) $85 ( 0.6%) $154 (0.7%) $113 (4.6%) $62 ( 0.8%) OH $152 (1.3%) Source: USDA, NASS, Cash Rent Survey.
Ohio cropland values and cash rents are above the national average. Ohio cash rents and cropland values follow the same trend. Cropland values, $ per acre 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Cropland values vs cash rents 0 1998 2001 2004 2007 2010 2013 2016 Cropland value, U.S. Cropland value, OH Cash rent, U.S. Cash rent, OH 160 140 120 100 80 60 40 20 0 Cropland cash rents, $ per acre Source: USDA, NASS.
Farm liquidity declined but still acceptable. Working capital only a third to a half from highs of 2010. 7 Current ratio = current assets/current liabilities (Working capital = current assets current liabilities) 6 5 4 3 2 1 0 2.2 2.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Current ratio, U.S. Current ratio, OH Source: USDA, ARMS.
Profitability was negative in Ohio and low but positive in the US. 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 0.5% 1.0% 1.5% 2.0% Farm profitability ratios (ROA and ROE) 0.8% 0.5% 0.2% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0.6% Rate of return on assets, U.S. Rate of return on assets, OH Rate of return on equity, U.S. Rate of return on equity, OH Source: USDA, ARMS.
Debt-to-asset ratios declined in Ohio and in the US, currently at historic lows showing great solvency and strong equity position. 12.0% Farm solvency (debt to asset ratio) 10.0% 8.0% 9.5% 8.9% 6.0% 4.0% 2.0% 0.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Debt to asset ratio, U.S. Debt to asset ratio, OH Source: USDA, ARMS.
Concentration of ag loans in Corn Belt but low ag delinquency rates. Average delinquency rates of 1.71% for U.S. since last year. Source: FDIC
Ag loan delinquency rates of 1.3% in Ohio since last year.
Ohio has 82 cases of bankruptcy fillings since 2006 Source: U.S. Courts, Table F-2
Ohio farm bankruptcy rate is half of the U.S. rate (0.93 vs 2.11) Source: U.S. Courts, Table F-2
Farm bankruptcy rates in Ohio remained low and half of U.S. Ag loan delinquency rates in Ohio now lower than U.S. 9 8 7 6 5 4 3 2 1 0 Financial Stress Indicators Agricultural delinquency rate (%), US Agricultural delinquency rate (%), OH Bankruptcy rate (per 10,000 farms), US Farm bankruptcy rate (per 10,000 farms), OH Sources: U.S. Courts, Table F-2 and FDIC. Note: The number of farms in 2017 were approximated using the number in 2016.
How does financial stress now compare to the 80s? Some parallels to the 1980s farm crisis: Declining commodity prices and farm incomes Land values falling after a rise Debt loads rising Key differences: Interest rates in the 1980s were much higher (17.5%) than current interest rates (4-5%) Debt-to-asset ratios at 11% now are lower than at 20% in the 80s Much of debt now is held by commercial banks and Farm Credit System Expanded crop insurance (revenue protection) coverage Repeat of the 80s is unlikely in current conditions.
Ag Outlook 2018 The downturn in agriculture has been gradual over the last three years with forecasted increases in farm incomes and farm assets for 2017. Livestock cash receipts are expected to increase but mixed forecast for crop cash receipts. Strength in farmland markets has helped, with cropland values and cash rents remaining flat for US. Farmers are experiencing more financial stress (small uptick in delinquencies and bankruptcies) but still at historic lows. Although financial stress is increasing for some indebted farmers, significant stress is not likely in the next year or two. Longer-run projections raise some concerns for 2020 or later if these ag conditions persist. The severity of the concerns will significantly depend on the rate of growth in farm debt and decline in land values and possibly increase in ag loan delinquencies.
Summary farm income and expenses Farm sector income is forecast to increase after three consecutive years of decline. Net cash farm income for 2017 is forecast at $100.4 billion, up 12.6 percent from 2016. Net farm income is forecast to be $63.4 billion in 2017, up 3.1 percent from 2016. If realized, it would represent a turnaround from the declines of 50% over the period 2013-2016. Farm income in Ohio has been 2.4-2.5% of national estimates over the last decade. Ohio net cash income declined by 43% to $1.3 billion and net farm income declined by 62% to $0.45 billion in 2016. Ohio s variability in net cash income and net farm income was higher than the U.S. over the last decade. Cash receipts are forecasted to increase by $14.1 billion (4.0%) in 2017, largely driven by increases in livestock and dairy receipts. Total production costs in 2017 are expected to go up 1.3%, although fertilizer, seed and feed are expected to decline.
Summary farm assets, debt and equity Farm sector balance sheet forecasts farm assets in 2017 at $3,027 billion, of which $2,643 billion is farm equity and $384 billion is farm debt. Farm assets are expected to increase by 4.0 percent, farm equity to increase by 3.9 percent and farm debt to grow by 4.4 percent. Farm real estate continues to be the largest part of farm assets rising to 83% in 2017. Farm assets and land values have fallen during the agricultural downturn period but are expected to stabilize in 2017. Farm debt continues to rise as decreases in cash income has made it harder to service debt.
Summary land values and rent Cropland values for the U.S. did not change from 2016 to 2017, remaining at $4,090/acre. Cropland values in Ohio declined by 0.3% to $5,780/acre in 2017, after decreasing 0.9% in 2016. This is the second year of declines in cropland values in Ohio. Cropland values in the U.S. remained stable. Cash rent for cropland in the U.S. remained at $136 per acre in 2017. After experiencing rent increases since 2007, in 2017 witnessed no changes in cash rents. Cash rents in the Corn Belt are still among the highest. Many states experienced zero or negative growth in cash rents. Cash rent for cropland in Ohio was $152 in 2017, an increase of 1.3% from the previous year.
Summary farm financial performance Farm financial performance indicators have continue to deteriorate in 2016 since their peaks 4-6 years prior. Farm liquidity, measured by the current ratio, fell to 2.2 for the U.S. and increased to 2.0 for Ohio in 2016, but still acceptable. The lower profitability ratios are problematic. The rate of return on assets of 0.8% and rate of return on equity of 0.5% for the U.S. are lower than their peaks in 2010-2012. In Ohio, profitability ratios are negative. The rate of return on assets fell to -0.2% and rate of return on equity to -0.6%. Debt-to-asset ratio were at 8.9% for the U.S. and 9.5% for Ohio in 2016. They are still near historic low.
Summary farm bankruptcies and ag loan delinquencies Ag loan delinquency rates can be though of as a leading indicator of farm financial stress. Farm bankruptcy rates can be thought of as a lagging indicator of farm financial stress. Ohio has seen 82 farm bankruptcies since 2006 (0.93 bankruptcies per 10,000 farms; approximately half of the US average). The state has already had 6 bankruptcies through 3 quarters of 2017, which is higher than the 2 in 2016 and equal to the 6 in all of 2015. Ag loan delinquency rates are at 1.71% for the U.S. since last year and at 1.3% in Ohio. Delinquency rates in Ohio are now lower than the U.S. Still have low delinquency and bankruptcy rates (with small upticks) during the agricultural downturn.
Ohio Farm Financial Condition: Farm Income and Assets, Land Values and Rent, and Farm Financial Stress Ani Katchova Associate Professor Farm Income Enhancement Chair Department of Agricultural, Environmental, and Development Economics The Ohio State University katchova.1@osu.edu Farm Income Enhancement Program http://aede.osu.edu/programs/farm-income-enhancement-program